Nord Stream Responds to Grigory Pasko

Lest we were worried about the relevancy of the blogosphere, it appears that the PR department at the Nord Stream headquarters in Switzerland has been carefully following Grigory Pasko’s copious original coverage of this pipeline project, which is a pleasant reminder that even the highest ranking businesses can still be open to starting a dialogue. In response to one of his columns which posted a number of questions, Grigory just received the attached response from Jens Mueller, who handles communications for the consortium. We naturally have some opinions about many of these statements, which I imagine are self-evident, but I am grateful to Herr Mueller for taking the time and effort to join the discussion. Below I attach the unedited response direct from Nord Stream for readers to formulate their own opinion over this important project (download here a copy on the Nord Stream letterhead). Answers to 10 Questions by Grigory Pasko Correspondence from Jens Mueller, Director of Communications, Nord Stream 1. Will Nord Stream actually be able to provide the Swedes and the Finns (and that means all of Europe) with a land-based alternative of the pipeline?

During the late 1990s, a Finnish-Russian consortium conducted a pre-feasibility study on various possible routes to transport natural gas to Europe. This study examined numerous different routes, including the transportation of natural gas via land (onshore), through the sea (offshore) as well as a combination of both (onshore and offshore). Among all of these options, the route across the Baltic Sea revealed to be the most feasible and the best possible solution in terms of technical, environmental, and economic viability. For that purpose of the question posed, the results of such pre-feasibility study will be made available to the public.Nord Stream continuously puts forward arguments why an offshore route is in many ways a secure solution. Some examples can be viewed on:www.nord-stream.com/uploads/media/Nord_Stream_Press_release_Shareholder_Committee_Meeting_eng_05062008.pdfwww.nord-stream.com/uploads/media/Nord_Stream_Espoo_meeting_eng_080530.pdf www.nord-stream.com/uploads/media/Nord_Stream_Statement_07022008_eng.pdf www.nord-stream.com/uploads/media/Nord_Stream_Statement_Feasible_route_eng_01112007.pdf2. By how much more can the cost of the project realistically increase? (Representatives of the company have pronounced figures from 7.5 to 8 bln Euros. Specialists assert that the whole thing will end up costing 15 bln Euros)Nord Stream’s investment budget is 7.4 billion Euros. This figure has been calculated on the basis of cost estimates for environmental surveys, pipe supplies (material costs), logistics and pipe-laying. As the respective contracts that fix the costs have already been signed or will be finalised soon, there is no reason to speculate about a higher sum. It would have been very unprofessional for Nord Stream to communicate exact details of estimated project costs before receiving bids for the major tender packages from potential suppliers. Based on the years of experience of these potential suppliers, these partners could have been able to evaluate the exact amount of money Nord Stream is internally calculating for building the pipeline. Having received final bids and signed major agreements with all key suppliers, Nord Stream now has a solid basis for the total investment calculation.The fact that Nord Stream’s project budget estimations are based on the real investment contracts was stated already in March 2007:www.nord-stream.com/uploads/media/Nord_Stream_Statement_Project_Budget_eng_31032008.pdf3. What is the real cost of laying one kilometre of pipe under the water today?Saipem has been contracted for laying the Nord Stream pipeline on 23 June 2008. The total contract value is worth over one billion Euros. However, specific costs per kilometre cannot be calculated. One has to consider the specific conditions which apply to each kilometre of the pipeline route – in landfall areas for instance installing of the pipeline will be more cost intensive as compared to other areas. The same applies to onshore pipelines in which different sensible areas such as forests, rivers and residential areas need to be crossed implying different laying techniques and thus varying costs.The budget for pipe-laying was announced immediately after signing the contract with Saipem:www.nord-stream.com/uploads/media/Nord_Stream_statement_Saipem_EN_20080624.pdf 4. What is the tariff for transporting one cubic meter of gas through the pipeline?The tariff for transporting gas via Nord Stream lies within the usual range of terms and conditions seen in the gas industry and reflects the agreed principles of the Gas Transportation Agreement signed with gas seller.Information on substantial parts of gas supplies already contracted can be found on:www.nord-stream.com/en/gas-for-europe.html 5. Which of the western banks is financing the project?About 30 per cent of the project costs will be financed via equity contribution by Nord Stream’s shareholders. They are the leading global energy companies Gazprom, BASF/Wintershall, E.ON Ruhrgas and Gasunie.These shareholders each have a solid financial foundation and have their shares listed on the international stock markets (excluding Gasunie which is 100 per cent owned by the Dutch state). It is foreseen that the remaining 70 per cent will be covered by project financing, including banks and export credit agencies. Currently, the framework of bank participation is being prepared. Nord Stream has chosen Société Générale, ABN Amro, and Dresdner Kleinwort as financial advisers for the financing of the project. As soon as we have concluded contractual agreements with external financiers, we will be able to name those. We expect this to be in the course of 2009.A statement on the current status of the financing plans is available here:www.nord-stream.com/uploads/media/Nord_Stream_Statement_EIB_eng_05032008.pdf 6. Is it really possible, without detriment to safe operation and out of technical circumstances, to get by without a service platform?Nord Stream has continued to seek maintenance solutions for the pipeline without building an intermediate service platform, especially in view of the debate and concerns in Sweden regarding the platform. Technological advancement now makes the operation and maintenance of the pipeline system feasible without the platform. Pipeline maintenance will be undertaken through the deployment of intelligent pipeline inspection gauges (“pigs”). Respective developers have confirmed that an inspection gauge will be able to travel the entire length of the pipeline. Studies are being finalised which describe the technical design of these gauges. Other pipeline projects, such as Franpipe and Langeled, show that long distance pigging is feasible for long high-pressure, large-diameter pipes.See also: www.nord-stream.com/uploads/media/Nord_Stream_Press_Release_Platform_eng_08042008.pdf7. Where precisely (the coordinates) will gas storage facilities be sited along the entire route of the pipeline?The Nord Stream pipeline will not have any storage facilities along its route. There will only be storage facilities along the onshore connection pipelines. Neither these pipelines nor the storage facilities are planned or developed by Nord Stream AG. Nord Stream’s shareholders, in particular their subsidiaries (WINGAS, Gazprom Germania), are planning major gas storage facilities along the onshore connections.For further information, please refer to the respective websites of the Shareholders:www.gazprom-germania.de/fileadmin/dokumente/erdgasspeicher/Erdgasspeicher_Hinrichshagen.pdfwww.wingas.de/628.html?&L=18. What overall damage to flora and fauna, fisheries will be caused based on the results of the laying of the pipeline and its operation?The pipeline is generally not expected to cause any major impact on flora and fauna in the Baltic Sea. This is also evidenced by the large number of offshore pipelines in the North Sea and elsewhere. Interference may be caused by pipe-laying during the construction phase. Construction works are, for example, likely to lead to avoidance reactions among certain fish species, which may leave the area temporarily as a result. This is, however, limited to the construction period. After construction, the fish will return. In general, most of the impact is local and temporary.The transboundary EIA report and the national EIA materials to be published by the beginning of 2009 will address the impact on flora and fauna in detail.Further information on the potential impact of the pipeline can be viewed on:www.nord-stream.com/en/environment/environmental-studies.htmlwww.nord-stream.com/en/environment/fishery.htmlwww.nord-stream.com/uploads/media/Nord_Stream_Press_Release_Fishery_seminar_eng_30112007.pdfwww.nord-stream.com/fileadmin/Dokumente/Background_Infos/Background_Info_Fishery/Nord_Stream_Backgr_info_Fishery_eng_20080417.pdf9. By whom and how will the pipe be removed from under the water after the end of the period of its operation (50 years)?At the end of its lifetime and after ceasing transport of natural gas, the pipelines will have to be decommissioned. The methods for decommissioning can either be removing the pipelines or leaving the pipelines on the seabed after cleaning and filling with water. The decommissioning method to be used will depend on practice and technology available at that time. Current industry views are that leaving the pipelines in place creates the least environmental impact. In any case, Nord Stream will decommission the pipelines in line with the legal requirements applicable at the time and in close cooperation with the relevant authorities of the involved countries.10. How will they compensate damages to fishermen for torn trawling nets and how will fishermen compensate damages in the event of damage to the pipe?Nord Stream’s design was conceived in accordance with DNV RECOMMENDED PRACTICE RP-F111 “Interference between Trawl Gears and Pipelines”. Experience from over 20 years of laying offshore pipelines in the North Sea and seeing them interact with fishing devices (trawl boards, beams and clumps) proves that, if offshore pipelines are designed using DNV RPF111, the damage to pipelines and fishing vessels is very limited, as offshore pipelines are overtrawlable.If large diameter submarine pipelines are crossed by bottom trawling gears, this does not lead to damage to gear or pipelines. A study carried out on trawling over pipelines in connection with the Zeepipe pipeline in the North Sea in 1993, along with other studies, showed that the bottom trawl was not caught by the pipeline and that there were generally no problems trawling over the 40” Zeepipe pipeline. Areas where rock-dumping might have to be considered are comparatively small. Additionally, there are no intense bottom trawling activities in these areas.In the unlikely case of loss of earning or damaged trawl gears of fishermen, Nord Stream will observe the respective regulations regarding compensation in all concerned countries. Furthermore, Nord Stream is discussing this issue in an open dialogue and strives for close cooperation with the fishermen’s associations.Comprehensive information on the fishery issue, including all presentations given at a seminar on fish and fisheries in November 2007, can be found on:www.nord-stream.com/en/company/companyevents/2007-11-30.html www.nord-stream.com/fileadmin/Dokumente/Background_Infos/Background_Info_Fishery/Nord_Stream_Backgr_info_Fishery_eng_20080417.pdf